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The Power of Opportunity Cost & Why You Should Use It

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Writing this article has been on my task list for over three months. I chose to do many other things instead of writing it. I will come back to this at the end…

What on earth is opportunity cost?

Opportunity cost can be defined as:

The value of what you have to give up in order to get what you want.

Another way to say this is that opportunity cost represents the benefits you give up in choosing one option over another option.

It can be difficult to identify opportunity costs when the benefits of the alternative choices aren’t easily measurable. Fortunately, some alternative choices are easily measurable. Let me give you a couple of examples.

Smart Phone

I first encountered the concept of opportunity cost in economics. It is rather easy to see when you put it in terms of money. If I spend $1,000 today on a new smart phone, that is $1,000 that I cannot invest in a stock mutual fund (for example). Doing a quick financial calculation, if I take that $1,000 and invest it in a mutual fund earning a 6% annual return compounding monthly, in 20 years the value will be $3,326. So the opportunity cost of purchasing the new smart phone today is $3,326 in 20 years. Of course, there is value in me having that smart phone today, so I may still choose it. I will just be better informed about the actual opportunity cost of that choice.

It’s a New Car!

One more financial example.

As a young person, I felt it necessary to always drive a nice, new car. I never had the money set aside to be able to pay cash for a nice, new car, so I financed it (aka I went into debt). This means I had a fat monthly payment to make to the lender that funded the loan on the car. The financing was typically four years. I had to make 48 monthly payments before the car was really mine. This reminds me of the old saying “I owe, I owe, so off to work I go.”

As vehicles became more and more expensive, car dealers began working with their finance arms to offer increasingly long loan payoff terms. This was to keep the monthly payments “low.” That meant that to buy a new SUV, I might be making that monthly payment for six years or even seven years.

Let’s not get too crazy with this example. I am going to use the four year loan length. Let’s say I buy an SUV for $40,000. I finance all of the price at 6% interest for four years. My monthly payment is then a whopping $939 per month! On top of that, I still have to insure it, register it, maintain it with oil and tires, repair it when it breaks down, and keep it gassed up. That is quite a commitment.

The problem with a vehicle is that it is a depreciating asset. It goes down in value with each passing day. Eventually, it will be worth nothing. How do I know this? Most of the vehicles I have purchased are now rotting in a junkyard somewhere or have been crushed into large cubes. The same can be said of the smart phone. It will eventually be worth nothing.

Thinking in terms of opportunity cost, what would that $939 per month car payment be worth if invested in a mutual fund with a 6% return compounding monthly? In four years it would be worth $50,819.

When I was buying cars this way,  there was a related problem I faced. After about four years I was ready for a new car. After all, the new car smell had long since vanished. The paint had a scratch or two. So I repeated the process. I bought into the idea that “I will always have a car payment.“

So let’s go with that logic and assume that I will continue making that $939 car payment every month for 20 years. When we do that math, at the end of 20 years I will own a fourth “new” vehicle that is worth a lot less than when I bought it. That is what a depreciating asset is after all.

If instead of purchasing vehicles this way over the 20 years I instead invested that $939 per month into a stock mutual fund with a 6% annual return, my value in 20 years would be $434,000. Guess what? I could then remove $40,000 cash from my mutual fund and pay cash for a brand new vehicle.

“Wow!” you say. “Why doesn’t everyone do it  this way?”

For several powerful reasons:

  1. To actually do it this way you have to delay gratification and possibly drive (G A S P) an old car you pay cash for. Definitely no new car smell there.
  2. To do this you have to be able to withstand the constant marketing and advertising of some of the smartest people on earth whose job it is to get you to “need” that new car smell. Think white Lexus, huge red bow on top, and snow lightly falling on you and your golden retriever.
  3. Finally, you have to overcome the peer pressure that might come from those who could look down their noses at you for driving something they view as beneath your station in life. What would the neighbors say?

Once I really learned the lesson about opportunity cost with regard to cars, I became a little obnoxious about it. In an effort to  help my kids learn the lesson, I would sometimes look at a parking lot full of expensive cars and say something like: “Look at all those beautiful depreciating assets.” They were not that amused.

One reason few of us do the opportuntiy cost calculations above is that there is indeed value in doing or enjoying something today. Driving in that new car smell, getting the latest smart phone, or having that daily cup of joe brings a certain amount of pleasure.

The concept of opportunity cost is not limited to financial matters. The reason I am a guitar plunker with a very limited skillset is because 10 years ago I prioritized other things above playing guitar. Those things may have been more important, but I still chose them over guitar. I wonder how many things we could all learn and accomplish if we didn’t binge-watch streaming entertainment? It takes a certain amount of vision to see beyond the present moment and to see what this moment could lead to if I chose a different opportunity.

In chapter 11 of my book Forward Story I write about vision: “Your mind has an amazing ability to visualize a future that has not yet occurred.Some of the greatest inventors and entrepreneurs that have ever lived had the ability to visualize their invention and how others would use it. They could see how it would make peoples’ lives better before it ever became a product. That is vision.”

You and I likewise have the ability to develop the vision to see the opportunity cost in anything we buy or in any way we spend our time and talents. We must nurture that kind of vision.

Conclusion

Back to the point I began with. Writing this post has been on my list for over three months. The reason it was not written before now is that I took the opportunity to do other things with my time. The reason it is being written now is because I chose it over all of the other things I could have done with this time. Such are the decisions we make.

My encouragement to myself and to you is to be more intentional about the opportunities we take. Pay attention to opportunity cost. Ask “Is this the best and highest use of my time, money, and talents? Ask “What am I giving up or postponing by choosing this option?”

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Honoring Al Dennis – The Sun Will Come Up

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Last fall I wrote an article about Al Dennis when the Baytown Sterling High School football field was named in his honor. That November day was my final time to speak with Coach Dennis. Today I gathered with my brother, my coaches, my teammates, Rangers younger and older, and with the Dennis family and friends to honor this life of deep significance.

There is no advanced math available by which we can quantify the impact he has made in the lives of his players and coaches. The lessons we learned in his program are part of us and our daily decision-making. Moreover, we have passed those values along to our own children and grandchildren. You simply cannot calculate such an effect when compounded over that many lives and over that many years.

How my heart rejoiced with every story shared today from the players who were legends in my life to those players who came after me. The stories also came from coaches, an NFL Hall of Famer and other Sun City friends, his grandson, and a famous TV personality. They were all fantastic.

However, the one I cannot get out of my mind is the story shared by a former student that did not play football. He shared that his father died when he was 14, and coaches Dennis and Kluch went out of their way to help him and show him humanity and compassion, making it possible for him to work an overnight job while still in high school. They showed him amazing respect and help allowing him to have a place to sleep while he worked and went to school. I regret not having been able to find this man after the service. I would love to get to know him.

Thank you to Scott Goodman and Martin Lemond for organizing us into a team that I am sure made Coach proud. Thank you both for your roles today in serving the family and all of us present.

Here is the story I shared today.

After my playing days were over in the fall of 1979, I watched my brother, Kelly, also play for the Sterling Rangers. I was the public address announcer for several years, including Kelly’s two varsity years (’81 and ’82). In the fall of 1982 Sterling had arguably one of the best two or three teams in school history. They had a legitimate shot at winning the state championship. After a satisfying first round win over LaPorte, they faced Beaumont Westbrook in the Astrodome. I got to announce that game, which was pretty special. My wife, Margot, was my spotter, as always.

I will not go into the details of that game, but anyone that was there will never forget it. This was prior to the high school overtime system in Texas for deciding tied games. Tied games at that time were subjected to a series of tiebreakers.

  • The game ended tied 7-7
  • Both teams were tied on penetrations inside the opponent’s 20 yard-line (which was the second tiebreaker)
  • That means the third tiebreaker would determine who advanced. Westbrook had two or three more first downs than Sterling.

They advanced and went on to win the state championship.

After the game, in the bowels of the Astrodome, I sat next to Kelly at his locker. He and his teammates were obviously upset at the result. Even though they had not lost, their season was over. Like them, I could not prevent the tears from coming. Coach Dennis came over and sat down next to me. He had just experienced what must have been one of the biggest disappointments of his coaching career, but he put his arm around me and with a smile said in that deep voice of his:

“Hey, Mr. Casey, the sun will come up tomorrow.”

You know what? It did!

That turned out to be the last game Coach Dennis coached. At that point he was ready to move on to his next challenge of leading schools and then school districts, at which he unsurprisingly excelled.

To Mrs. Dennis, Chad, Coleman, and the rest of the family, you know that Coach was a man of faith trusting in the big promises. I know it was his hope in eternal things that allowed him to remind us all that in the face of disappointments, the sun will come up tomorrow. I hope you find comfort in that. Thank you for sharing him with us!

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Big Al: I Would Not Trade You

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I played football under the Friday night lights in Baytown, Texas in the late 1970s. Most people think I am exaggerating when I tell them that we had 20,000 people watching our games against our crosstown rival. It is no exaggeration. Such was high school football in Texas in the 1970s. Our school had a lot of success in football in those days. We were not always the biggest, fastest, or most talented team, but we had some special advantages that other teams did not have. We had a system that made our team stronger than the sum of its individual parts.
 
It is my conviction that any great team has great leadership. We had great leadership. Our head coach was a man named Al Dennis. He is a legend in our little corner of the world. If he had coached longer, I am convinced that he would have gone down as one of the best Texas football coaches ever to roam the sidelines. But I am biased. Instead, after eleven years in coaching Al Dennis moved into school administration where, to no one’s surprise that knew him, he had a successful career guiding schools and school districts to excellence.
 
The first time I ever saw him I must have been a junior high football player. To me he seemed seven feet tall and in his fifties. In truth, he was not that tall and was only in his early thirties. He commanded so much respect that I would never have dared to refer to him the way many in our community did: Big Al. I guarantee you that was a term of endearment, but to me he was simply Coach Dennis.
 
His coaching philosophy permeated his coaching staff and was reinforced by the position coaches that worked with us on a daily basis. Coach Dennis had installed a system based upon discipline, precision, and teamwork. It took me a while to realize that my position coaches were truly Coach Dennis’ ambassadors representing what mattered most to him. He hired principled coaches that not only knew the game of football and the details of their position groups, but men who understood that the most important job they had was raising young men to be men of character.
 
There are many things I remember from those days playing football, but one of the things that really stands out to me is something that coach Dennis and his other coaches frequently told us. When we were facing an opponent that was believed to be more talented than we were, in the privacy of our own locker room just before we took the field he would tell us:
 
“I would not trade a single one of you for a single one of them.”
 
That always gave me incredible motivation.
 
This was not to knock the other guys. He is not that kind of person. It was to affirm us. He had spent the same long hot hours on the practice field that we had. He knew the level of investment we had in his program, and he believed in our hard work and in his own system to the point that he knew we would be successful regardless of who our opponent was. Coach saw in us attributes that he believed in and relied upon. He would take those attributes over raw natural talent. He had a relationship with us, not with them. It gave me real confidence to execute my assignment to the best of my ability. He was pulling for me to succeed, and he believed I could. That was enough for me. I certainly did not want to let him down.
 
Perhaps many coaches used that line about not trading us for them. Perhaps to you this it may seem like just another coaching gimmick. To me it was a statement of reality. I am grateful for that kind of wisdom. It is very affirming to have someone that you respect and love tell you that you are valuable enough that he would not trade you even for someone that might be considered to be “better” than you or more talented than you.
 
Coach Dennis taught much more than just football. While he had great success as a football coach, his former players will tell you that he cared about us as individuals. He knew that what happened in our lives beyond the football field would be more important then whether we won or lost on a given Friday night. He was coaching life and embedding life-long lessons in us.
 
I hope you will try to use Coach Dennis’ powerful approach with those that you care about. Perhaps it’s your children or your good friends or your spouse. When you tell them that you value them so much that you would never trade them in for a “better” version, it is very affirming. It empowers those who receive such affirmation.
 
On November 3, 2022 I and many other former Sterling football players, as well as a large group of people from our community,  gathered at the high school to celebrate Coach Dennis and to see the school’s football field named after him. This is an honor that is well deserved. I want to thank the Goose Creek ISD school board for making this happen. Thank you to Dr. O’Brien and his staff for putting it together. Thanks also to the City of Baytown for its proclamation of Coach Al Dennis Day. It was a blessing to be with Coach Dennis, Paula, and “little” Chad. It was also meaningful to be with Jimmy Creel and Richard Bethell, two of those men who coached under Al Dennis. They have also made a lasting positive impact on my life.
 
Coach Al Dennis, I am grateful for your investment in my life. There is one thing I want you to know: I would never trade you for anyone else’s coach. Every honor you receive is well-deserved. Thank you for everything, Coach!
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Rescuing Rhett

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On Monday, April 4, 2022 an era ended for our family. Our beloved corgi Rhett passed away peacefully at home in his sleep in his favorite sleeping spot. That he had such a peaceful passing was a great mercy to us. He removed the trauma that we dreaded.

It is the end of an era because he was the final packmate of the trio that included our other beloved corgis Fiona and Toby. Those two were our originals that we adopted when our children were still young and at home. Rhett joined their already well-established pecking order and found a way to fit right in. For the next many years our house was a flurry of furry activity. It was equally noisy and enchanting.

Rhett’s life began at a breeder operation about an hour from us that was dubious, to be kind. To not be kind, it was a puppy mill. Our daughter was at college and wanted a dog to keep her company. She loved our other corgis, so I began looking for corgis in our area. I found this breeder online. We drove there to meet Rhett for the first time. He had been born in October, so he was only a few weeks old when we met him in November 2009.

We waited in the office while Rhett was brought in to us. He was so tiny and so precious. It was love at first sight. Honestly, how can you not fall in love at first sight with all puppies? I requested to see the mother and father (or dam and sire, if you prefer breeder talk). The woman was very reluctant to let me see them. I insisted. She took me back through a maze of dilapidated buildings to a ramshackle shed where this poor mother dog was living in what appeared to me to be squalid conditions. It made me sad. It also made me angry.

I have titled this article “Rescuing Rhett” because once I saw the conditions in which he was born, I intended to rescue him as soon as possible to give him the life he deserved. I was able to do just that on December 10, 2009. I drove down there with a new crate and brought him back to our house. After Rhett was safely in our lives, I also filed a complaint with the authorities about the abysmal conditions at that facility. I never got closure on that, but in my mind I hope that is reason there is no longer any online presence for that breeder.

Off Rhett went to college with Kellen in January 2010 as a very young pup. It was in Lubbock, Texas that he provided love to a college student far from home. There he learned to chase frisbees, go on walks, and keep watch over the apartment as his Mom was at school. Later our son also joined our daughter at college in Lubbock, and he spent a lot of time with Rhett as well.

Every pet has unique characteristics. Rhett had many. One of his most endearing was that when he was picked up and held, he would put his chin on your shoulder facing backward. To us it seemed like a hug, so we would ask him, “Hugs?” Then he would dutifully allow us to pick him and up and hold him in that embrace. He was especially willing to give hugs to Kellen and Matt.

I have lost some of the exact chronology, but once Kellen finished college she and Rhett moved home and lived in an apartment. Then, through an apartment change that allowed no pets, it made sense for Rhett to come live with us and join the existing pack of two with Toby and Fiona. After a short adjustment time, the three of them had the pecking order worked out. Fiona was the Alpha and in charge, but she allowed Rhett to wrestle with her and chew on her a little. There was a limit to that, however, and she would let him know when he had crossed the line.

At various points both Kellen and Matt lived with us and our pack for short times while they were getting started in their careers, so all of us got to enjoy the corgi pack. We have special memories of all three dogs interacting together. Corgis are such entertaining little beings.

In August 2015 Fiona was the first of our pack to cross the Rainbow Bridge. Toby and Rhett became closer and inseparable.

One story from that timeframe. In July 2016 some friends visited us from out of state and stayed at our house. One of the children in that family left her bedroom door open with a suitcase on the floor. Toby, who was always food-crazy, found a package of sugar-free gum. He recruited Rhett to help him devour the package. When we discovered this situation, we realized that the gum was sweetened with Xylitol – very toxic to dogs. Given that it was a weekend, we had to take them both to the emergency veterinarian. When all was said and done, the final tally was $3,646. That was a very expensive pack of gum! From that point forward our vet clinic referred to Toby and Rhett as “The Xylitol Twins.”

We lost Toby in April 2018. He had been our first corgi. As with Fiona, it was very painful to let him go. Our house was much quieter with only little Rhett left. He was never a loud dog, except for four triggers which would set him off. We are certain that he learned his hatred of all three from Fiona. If you wanted Rhett to bark and make a racket, just put a new trash bag in the garbage bin, run a vacuum cleaner across the floor, set up the ironing board, or fire up the hair dryer. I am sure Fiona was proud of her understudy as he faithfully maintained her legacy.

In April 2019 Rhett was diagnosed with Progressive Retinal Atrophy (PRA), a genetic condition allowed to occur because of the unethical breeder, who did not do needed testing before breeding the sire and dam. Our veterinary ophthalmologist explained that every puppy born to that mother and father will have developed PRA. It leads to blindness, and there is no cure.

So, the last few years of his life Rhett was in near-total blindness. It was amazing to see him use his senses of smell, hearing, and touch to compensate for his loss of vision. We had a dog door onto the back patio and into the back yard. Even with his deteriorating sight, he would easily go out and spend hours on the patio enjoying the great outdoors. He had every square inch of that house mapped.

Then in July 2021, we moved into a new house. The back yard is steep enough to require stairs. Stairs are one obstacle Rhett could not master. It was too dangerous. So there was no dog door for him at the new place. Even so, after a couple of challenging weeks, he adjusted beautifully to the new house. The covered back patio was a place he really enjoyed hanging out. We installed a gate so he could not wander onto the stairs. He really enjoyed spending time on that patio and feeling the breeze. He loved being with us and was our constant companion. He was an important part of our human pack.

A couple of additional observations about Rhett. He hated riding in the car. By the time we got him to the vet, he was incredibly stressed and shaking. Like I said, dogs all have their own little idiosyncrasies. Also, when our young grandson would visit us and eat in his high chair, much of what was intended for his mouth ended up on the floor. This was fine with Rhett, who hung out underneath and kept the area clean.

As I already mentioned, even though Rhett was a quiet dog, he was not silent. Our house is now much quieter. There is no more clicking of nails on the floor. There is no more shaking of his collar tag. There is no more sprinting for doors that are opened. Of course, we think of him anytime we vacuum, dry hair, or put in a new trash bag. It is quiet. There is also no longer a faithful companion waiting by the front door or the garage entry door for our return. 

I must thank my Dad for helping take care of Rhett each time we were out of town. My Dad is a definite “dog person.” He had a special place in his heart for Rhett. I know he misses him, too. I also want to thank him for being there for me as we laid Rhett to rest under his and Mom’s Memorial Oak. It is a perfect place where Rhett joins their beloved dog Prissy and Charley the cat, as well as my sister’s cats Buddy and Sasha. Margot and I are grateful.

As with Fiona and Toby, I once again want to thank Dr. Todd Rabon at VCA Premiere Animal Hospital for his compassionate care for Rhett.

At the end of this era, what did Rhett mean to us? He brightened our lives with companionship and happiness. He was important not only to Margot and me, but also to Kellen and Matt. As with Fiona, Toby, and all of the special cats we have had, we stand in admiration – no, we stand in awe – of God’s creative work.

I miss you, Rhett. I love you, buddy. Thank you for sharing our lives with us.

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What Retirement Means

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Recently I wrote that it is time for me to re-write my Forward Story. That is because my wife and I recently achieved a major goal that we had been working on for well over a decade. With that accompished, it would be foolish to just meander without a new focus.

As I always do when I re-write my story, I start with the most distant timeframe I can envision. For me that is retirement.

The concept of retirement is a bit challenging. What does it mean to retire? We have all either known people or have heard stories of people that retired after a long employment and within a short time were either bored out of their minds or had actually passed away. Some people view retirement as a time to do nothing but relax and play.

Have you thought of what retirement means to you? I am fortunate to have many family members and friends that have already retired. By observing them I have a clear understanding of what retirement means to me. To me, retirement is simply that state of no longer needing to work for earned income. It is when passive income and/or retirement income supplies my needed standard of living. Let’s break this down:

  • Earned Income. Pretty self-explanatory, this is the most common form of income. I trade my time and talent for money. This could be hourly wages, salary, salary and commission, or contract. The biggest component of this that impacts my life is time.
  • Passive Income. This is income I receive from my investments. This can include equity appreciation through markets increasing, interest income, dividend income, etc. I get rewarded for putting my capital at risk. Very safe investments yield lower rates of return. Riskier investments typically have to pay higher rates to induce me into putting my money into them. Regardless of the actual investment vehicle and its returns, I get passive income from it. Instead of me working for my money, my money works for me.
  • Retirement Income. Increasingly rare, the company pension plan is an example of retirement income. Another example in the USA is Social Security.
  • Needed Standard of Living. Now we get a bit more complicated. I had to go and throw in the word “needed.” If I live in a tent on a friend’s property, my needed standard of living is very low relative to what it would be if I live in a four story house with a a gigantic mortgage. Of course, I get to determine my standard of living and whether I live in a tent, a four story house, or anything else. It is important to think through all of the implications of my needed standard of living vs my desired standard of living. I always need far less than I desire. You get to wrestle with all of that just like I do. As it pertains to retirement, the higher your standard of living, the more passive income you will need. This will likely delay your retirement.

Now that I have defined things, the main benefit for me once I retire will be more freedom over my time and talent. Without needing to use them for earned income, I now get to decide what is worthy of both.

Conclusion

Given this understanding of retirement, I have to calculate what that magic number is that combines both passive income and retirement income in such a way as to meet my needed standard of living. There is a lot of financial calculations and math involved in that. Nerds like me love this stuff. With all of the usual disclaimers about not knowing the future, we can then project a potential timeline for retirement.

Then I get to the more exciting part of writing the new story – envisioning the ways in which I will invest my time and talent in that new retired state. There may be some golf, tennis, and skiing in that for me, but that will be on the fringes. The retired people I know that are in their 80s and 90s are usually very active people that continue to serve and help their family, their friends, and their world. My plan will involve all of that.

What is your approach to retirement?

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It’s Time for a New Story

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Photo by Max Saeling on Unsplash

The most powerful thing about a story is that it can make you believe. When you write a story about your future, you are committing to paper a vision for what you want to accomplish. A goal is an example of a story. The way I write my Forward Story is to create a comprehensive view in different timeframes of what I plan to accomplish. This includes many goals, objectives, etc.

I revise my story annually. At least that is my desired approach. I do not do this perfectly. For the last few years my wife and I have been working toward the completion of one of the major chapters in our life. This chapter has been primarily financial – overcoming many years of bad financial habits and decisions and getting back on course. Since this has been a dominant theme in our lives, the story has not changed that much.

Within the last year we have achieved what for a long time appeared to be unlikely. It was not easy, but we have now reached a new stage. Even though we are smack in the middle of the year, I realize that I need to revise my Forward Story now. I do not need to wait until the end of the year.

I will go back to the process I lay out in my book and begin doing a revision that will help me get my new bearings in this new reality.

Next post about the re-write

Where are you in your story? If you are ready for a re-write, there is no time like the present.